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The REIT sector - offering a yield of about 1.30% more than Treasurys - may look nominally...

The REIT sector - offering a yield of about 1.30% more than Treasurys - may look nominally attractive, but it's a sell, says John Coumarianos. The companies are trading at 22X Funds From Operations (FFO) - offering no margin of safety should rates turn higher. Most expensive are the apartment owners - EQR, AVB, UDR - priced as if they will have annual rent increases of 5-6% forever.
Comments (2)
  • Obviously, I don't know it all by any means. I understand different people have different objectives and mine is to maximize my income / Profit, while minimizing risk.

     

    I certainly would not be in these high priced stocks in most any environment with that low dividend. Plus the downside risk in a correction seems to me to be much greater than the upside equity chase, or the dividends rec'd.

     

    I feel in ALL equity markets, (stocks anyway) that there is the inherent risk of markets rising and falling due to emotion and outside events making sellers out of holders and for little reason for a particular investment to go up or down, the emotions of the day rule that day or trend, no matter how good or bad a certain stock is doing on its own.
    This is why, with a diversified portfolio, why not go for the risk of high paying REITs, because, if the macro events do not take place, the only negative for them would be the emotions or the input of the gurus. If the input is emotional, and newsy, but not specifically related to the fundamentals of a given stock, that stock may fall, but if it is an emotional drop, then one should hold. If one sees the fundamentals of a given equity weakening, then sell [or put a trailing stop in]. But, to sell out just because someone says so, or all stocks are dropping on the day, it is a hold in my book, and my experience shows that is a good plan.

     

    Now if the entire market is getting ready to fall, one must be VERY attentive.

     

    I have held most REITs thru the "storms" of bad news, but strong fundamentals, and glad I did.

     

    I am out now, because the macro fundamentals of the major market could make me lose more equity than the dividend I am getting, so I am out and watching for a couple of months.

     

    Happy Election and Storm.

     

    My prayers go to those in the NE waiting for 'cane Sandy. Good luck up there.

     

    Capt. Brian
    The Lost Navigator
    29 Oct 2012, 09:55 AM Reply Like
  • "All generalizations are false, including this one." Mark Twain

     

    All REITs are not trading at 22x FFO. If you believe they are you are missing bargains. DLR is trading at 12.4x FFO and yields 4.8%.
    29 Oct 2012, 12:37 PM Reply Like
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